Texas Petrochemicals LP v. ISP Water Management Services LLC

OPINION

We are asked to determine whether the trial court erred in refusing to compel arbitration. Texas Petrochemicals LP (“TPC”) and ISP Water Management Services LLC (“ISP”) jointly own a dock that TPC operates under the terms of a written agreement. Contending that TPC had not complied with the terms of the written agreement, ISP sued TPC seeking to partition the dock. TPC sought arbitration of ISP’s claims. ISP resisted and asserted that the scope of the agreement did not include any agreement to arbitrate claims for equitable relief. Without making any findings of fact or conclusions of law, the trial court denied TPC’s motion to compel arbitration. Because the claims that ISP advanced regarding the partition of the property rely on the contract and are factually intertwined with ISP’s claims that TPC breached the contract, we hold that ISP’s claims are -within the scope of the parties’ arbitration agreement. Therefore, the trial court erred in denying TPC’s motion to compel arbitration.

Background

The parties to the dispute, TPC and ISP, jointly own a dock and a related parcel of land in Jefferson County. The dock is operated under a Dock Facilities Agreement (the “Agreement”), made by the corporate predecessors of both TPC and ISP. 1 The Agreement includes an arbitration clause that provides:

*882 9.2 All controversies or claims among the parties hereto (other than those involving claims for equitable relief) arising out of [the] interpretation of this Agreement or performance thereof shall be settled by one or more arbitrators under the rules of the American Arbitration Association in effect at the time.

In May 2005, the existing dock was struck by a vessel and severely damaged. According to ISP, TPC decided in 2007 to rebuild the dock. Subsequently, ISP refused TPC’s request to pay a proportionate share of the expenses incurred in rebuilding the dock. After TPC completed its work on the dock, TPC apparently excluded ISP from the dock and took the position that ISP had forfeited its interest in the dock.

In February 2008, ISP demanded arbitration of certain claims concerning the dock. ISP’s arbitration demand requested declaratory, injunctive, and monetary relief. In August 2008, ISP filed the underlying suit in the case against TPC in state court and requested that the trial court partition the dock by selling it. In January 2009, the arbitration panel rendered an award 2 on the disputes presented to it. The arbitration award required ISP to pay approximately one-half of the dock’s reconstruction cost. The award also stated that ISP had not forfeited its interest in the dock. The panel denied ISP’s request for damages related to its claim that TPC had refused ISP access to the dock. The award further recites: “Any other relief requested by either party that is not granted above is denied.”

With respect to this lawsuit, in March 2009, TPC filed its amended motion requesting that the trial court order the dispute to arbitration. 3 Subsequently, the trial court conducted a hearing on TPC’s motion. At the end of the hearing, the trial court denied TPC’s motion to compel arbitration and its request to abate the proceedings. TPC timely perfected its interlocutory appeal from the trial court’s order. See Tex. Civ. Prac. & Rem.Code Ann. § 171.098 (Vernon 2005) (providing for interlocutory appeal from an order that denies an application to compel arbitration); see also Tex.R.App. P. 26.1(b) (providing that notice of appeal in accelerated appeals must be filed within 20 days after the order is signed); Tex.R.App. P. 28.1(a).

Federal or State Law?

The record does not reflect whether the trial court applied state law or federal law when it denied TPC’s motion. TPC’s motion requested that the matter be sent to arbitration under both federal and state law. The parties’ briefs were not specific about whether we should apply the Federal Arbitration Act (“FAA”) or the Texas General Arbitration Act (“TAA”) to the issues. See 9 U.S.C.A. §§ 1-16 (West 2009) (FAA); Tex. Civ. Prac. & Rem.Code *883 Ann. §§ 171.001-171.098 (Vernon 2005) (TAA). Therefore, we requested that the parties file additional briefs to address whether the Agreement is governed by the FAA or the TAA. 4

Both parties responded, and both argue that the TAA applies to the Agreement. We note that even when a contract affects interstate commerce, which triggers the application of the FAA, the arbitration provision at issue may also be enforced under the TAA. In In re D. Wilson Construction Company, 196 S.W.3d 774 (Tex.2006), the Texas Supreme Court explained the conditions under which the FAA would preempt the TAA. The Court stated:

For the FAA to preempt the TAA, state law must refuse to enforce an arbitration agreement that the FAA would enforce, either because (1) the TAA has expressly exempted the agreement from coverage ..., or (2) the TAA has imposed an enforceability requirement not found in the FAA....

Id. at 780 (citations omitted).

With respect to determining the scope of the arbitration agreement that is before us, we conclude that the FAA does not preempt the TAA. Under both the FAA and the TAA, arbitration is considered a matter of contract law; therefore, courts may require a party to submit a dispute to arbitration only if the party has expressly agreed to do so. See Volt Info. Sciences, Inc. v. Bd. of Trustees of Leland Stanford Junior Univ., 489 U.S. 468, 478, 109 S.Ct. 1248, 103 L.Ed.2d 488 (1989) (“[The FAA does not] prevent parties who do agree to arbitrate from excluding certain claims from the scope of their arbitration agreement[.]”); Forest Oil Corp. v. McAllen, 268 S.W.3d 51, 61 (Tex.2008) (explaining that after determining whether a contract’s arbitration clause is enforceable, courts then turn to whether the claims advanced in the suit fall within the scope of the arbitration provision); see also Tex. Civ. Prac. & Rem.Code Ann. § 171.021(a) (Vernon 2005) (requiring court to order arbitration when there is an agreement to arbitrate and a refusal to do so). Under both federal and state law, arbitration is a strongly favored policy. Forest Oil, 268 S.W.3d at 56; Cantella & Co. v. Goodwin, 924 S.W.2d 943, 944 (Tex.1996). Finally, the parties do not assert that the TAA creates a requirement related to enforcing the Agreement that does not exist under federal law. Thus, in this appeal, we apply Texas law and the TAA in determining whether ISP’s claims are arbitrable.

Contentions of the Parties

ISP contends that it did not agree to arbitrate claims involving equitable relief *884 and that its suit to partition by sale involves a claim for equitable relief. In its original petition, ISP alleged that “[ISP’s] claim for partition of the Dock Parcel is a discrete part of a larger dispute between ISP and TPC, a portion of which is currently pending in AAA arbitration.” ISP concludes that the trial court did not err in denying TPC’s motion to compel arbitration.

In contrast, TPC contends that ISP’s claims are within the scope of the Agreement’s arbitration provision. TPC notes that ISP’s petition includes a claim for statutory partition under chapter 28 of the Texas Property Code. See Tex. Prop.Code Ann. §§ 23.001, 23.002 (Vernon 2000). Relying on Scoggins v. Taylor, 248 S.W.2d 549, 551-52 (Tex.Civ.App.-Amarillo 1952, writ ref'd), TPC argues that Texas law distinguishes between claims for equitable partition and claims for statutory partition. TPC further asserts that section 9.3 of the Agreement, 5 which provides for a contractual right of first refusal, prevents a trial court from ordering the property sold. Additionally, TPC argues that because the Agreement contains a right of first refusal, ISP waived its claim to partition the dock by sale.

Standard of Review

Whether a given arbitration clause imposes a duty to arbitrate is a matter of contract interpretation and a question of law for the court. AT & T Techs., Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649, 106 S.Ct. 1415, 89 L.Ed.2d 648 (1986); Valero Energy Corp. v. Teco Pipeline Co., 2 S.W.3d 576, 589-90 (Tex.App.-Houston [14th Dist.] 1999, no pet.). A trial court’s interpretation concerning the scope of a contract’s arbitration clause is reviewed under a de novo standard. McReynolds v. Elston, 222 S.W.3d 731, 740 (Tex.App.-Houston [14th Dist.] 2007, no pet.); Valero, 2 S.W.3d at 590; Dell, Inc. v. Muniz, 163 S.W.3d 177, 180 (Tex.App.-San Antonio 2005, orig. proceeding). In a de novo review, the trial court’s decision is given absolutely no deference. Quick v. City of Austin, 7 S.W.3d 109, 116 (Tex.1998).

Under Texas law, a written agreement to arbitrate is valid and enforceable if an arbitration agreement exists and the claims asserted are within the scope of the agreement. Tex. Civ. Prac. & Rem.Code Ann. §§ 171.001, 171.021 (Vernon 2005). “To determine whether a party’s claims fall within an arbitration agreement’s scope, we focus on the complaint’s factual allegations rather than the legal causes of action asserted.” In re FirstMerit Bank, N.A., 52 S.W.3d 749, 754 (Tex.2001). Because Texas’s public policy strongly favors the arbitration of disputes, “ ‘[a]n order to arbitrate should not be denied unless it can be said with positive assurance that the arbitration clause is not susceptible of an interpretation that covers the asserted dispute.’ ” Williams Indus., Inc. v. Earth Dev. Sys. Corp., 110 S.W.3d 131, 137 (Tex.App.-Houston [1st Dist.] 2003, no pet.) (TAA) (quoting Hou-Scape, Inc. v. Lloyd, 945 S.W.2d 202, 205 (Tex.App.-Houston [1st Dist.] 1997, orig. proceeding) (FAA)). Once a valid agreement to arbitrate is established, the burden to *885 show that a claim falls outside the scope of the arbitration provision lies with the party that opposes arbitrating the dispute. Prudential Sec. Inc. v. Marshall, 909 S.W.2d 896, 900 (Tex.1995) (orig. proceeding) (FAA); McReynolds, 222 S.W.3d at 740(TAA).

Discussion

Because there is no current dispute that the parties entered a valid agreement, the issue in this case concerns whether ISP’s claims are within the Agreement’s scope. To evaluate that issue, we look to the claims alleged in ISP’s petition, which states that its “rights and obligations with respect to Dock #2 and the Dock Parcel are governed by the Dock Facilities Agreement between the two parties.” ISP’s petition goes on to describe how TPC has allegedly violated the Agreement by asserting exclusive control over the dock and then utilizing that control to deprive ISP of its use of the dock.

By looking at ISP’s claims, it is clear that whether ISP is entitled to the remedy it seeks — partition by sale — -is dependent upon resolving contract disputes. Based on ISP’s allegations, whether ISP was wrongfully excluded from the dock directly involves the litigation of its contractual rights.

While the parties’ arbitration provision contains an exception for claims involving equitable relief, the Agreement did not further describe claims the parties intended to exempt from arbitration. The contract is not clear with respect to whether the parties desired to exempt claims that involved mixed questions of law and equity, or instead, whether the parties intended to exempt only claims that involved solely equitable issues. For instance, if ISP sought to gain entry to the dock, we assume it could assert that, as a joint-owner, it had a right of entry. Resolving that claim would not necessarily involve determining ISP’s contract rights, or even referring to its contracts. Thus, while a given partition claim might be based solely on an equitable right, ISP’s claims, as revealed by its pleadings, depend on resolving claims arising under the parties’ contract.

Further, “Texas law favors the joint resolution of multiple claims to prevent multiple determinations of the same matter.” Jack B. Anglin Co. v. Tipps, 842 S.W.2d 266, 271 (Tex.1992). In that regard, we note that the arbitration panel’s award denied ISP recovery of damages related to its claim that TPC refused ISP access to the dock and ISP’s request for an injunction to prevent TPC from allowing third parties to use the dock. In light of those findings, which are now apparently final, it seems inconsistent to allow another forum to litigate factually similar claims to allow another type of remedy in light of the initial forum’s denial of a remedy through damages.

Claims, even if otherwise not arbitrable, can become arbitrable when factually intertwined with arbitrable claims. See id. Generally, if the facts alleged in a claim “ ‘touch matters’ that are covered by, have a ‘significant relationship’ to, are ‘inextricably enmeshed’ with, or are ‘factually intertwined’ with the contract that contains the arbitration agreement, the claims are arbitrable.” In re Bath Junkie Franchise, Inc., 246 S.W.3d 356, 366 (Tex.App.-Beaumont 2008, orig. proceeding) (quoting FirstMerit Bank, 52 S.W.3d at 754); In re Nestle USA-Bev. Div., Inc., 82 S.W.3d 767, 776 (Tex.App.-Corpus Christi 2002, orig. proceeding); Hou-Scape, 945 S.W.2d at 205-06. As a result, “[c]laims must be brought on the contract (and arbitrated) if liability arises solely from the contract or must be determined by reference to it.” In re Weekley *886 Homes, L.P., 180 S.W.3d 127, 132 (Tex.2005) (orig. proceeding).

ISP’s pleadings reveal that its case for partition is premised on a dispute over whether TPC complied with the Agreement. TPC’s liability, as alleged by ISP, must be determined by reference to the contract. Because ISP’s claims are not based solely on claims arising in equity, we find the parties, when they entered the contract, likely intended that claims that were factually intertwined with legal claims involving the interpretation of the contract be arbitrated.

We hold the trial court erred in denying TPC’s motion to compel arbitration because ISP’s claims are within the scope of the Agreement’s arbitration provision. We reverse the order denying the motion to arbitrate and remand this cause with instructions to the trial court to enter an order compelling arbitration and staying all other proceedings pending the outcome of the arbitration.

REVERSED AND REMANDED.